21 Oct 2015

Dairy prices drop

1:54 pm on 21 October 2015

International dairy prices have fallen in the latest Global Dairy Trade auction overnight.

The benchmark GDT price index fell by 3.1 percent to $US2735 a tonne.

The fall was the first in five auctions, which had seen prices rise 78 percent off record lows.

The price of whole milk powder, the key commodity underpinning Fonterra's farmgate milk price, fell by 4.6 percent to $US2694 a tonne, while butter, skim milk powder and cheddar all fell in price between 2 and 11 percent.

The amount of produce offered at the latest auction was down 2 percent and Fonterra has been reducing the volumes it has been selling to help support prices.

Fonterra's forecast payout of $5.50 per kg of milk solids is based on wholemilk prices reaching around $US3,000 a tonne.

Dairy analyst Susan Kilsby of AgriHQ said the latest fall was a surprise and a further rise had been expected.

"The slow down in the recovery of the dairy markets will be disappointing for dairy farmers whose cashflows have been squeezed by two seasons of low milk prices."

She said prices were still expected to push higher in coming months but the rate of growth had slowed, and it may take until May next year before the target price for milk powder was reached.

Westpac senior economist Michael Gordon said the market was still flooded with product and there were no signs of production slowing in the northern hemisphere.

"On the other side of the equation, there hasn't really been reason to think that demand for dairy products has improved," he said.

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